These days, it’s quite common to see people working well into their late 60s. Not always because they want to, but because they’ve left their retirement planning late, and they’re desperately trying to build up some last minute retirement savings so they’re not forced to live off the State Pension in their later years. It’s not an ideal situation, is it?
If the thought of working into your late 60s doesn’t appeal to you, it’s probably a good idea to put a retirement savings plan into place sooner rather than later. With that in mind, here are three smart things you could do that could help you retire early.
Start saving early
This is an obvious tip and one that comes up regularly, but I can’t overemphasise the importance of starting early when it comes to retirement saving. Put simply, the earlier you start, the earlier you’ll be able to retire.
For example, if you save just £3,000 per year (£250 per month) from age 25 and invest it in a diversified portfolio of growth assets earning 9% per year, your money could grow to over £700,000 by age 60. Start at age 45, however, and the same amount of savings will only grow to around £100,000 by age 60. That’s a huge difference.
Take advantage of government bonuses
Taking advantage of the generous government top-ups (which most people don’t even know about) that are available from products such as the Self Invested Personal Pension (SIPP) and the Lifetime ISA could turbocharge your savings even further.
For example, the SIPP provides ‘tax relief’ top-ups on your contributions. So, assuming that you’re a basic rate taxpayer, a £3,000 contribution will be boosted to £3,750. Put £3,000 per year into a SIPP from age 25 and you could be looking at a retirement pot of around £750,000 by your late 50s, assuming an average annual return of 9%.
Similarly, the Lifetime ISA provides a 25p bonus for every £1 invested while you’re under 50. So, assuming you start saving £3,000 per year at 25 and earn a return of 9% per year again, that £700,000 by age 60 we talked about earlier could actually become closer to £875,000.
Get your money working for you
But how do you generate a return of 9% per year on your money? Well, that all comes down to having the right mix of assets in your portfolio.
To achieve that kind of return, you will have to take some risk with your money. You’re not going to get a 9% return if your money is sitting in cash. But with a diversified portfolio that contains a nice balance of dividend stocks, growth stocks, and international stocks it’s certainly achievable. Pick the right stocks and funds and you could even generate a return much higher than that.
The good news is that if you’re looking to learn more about how to grow your retirement savings so that you can retire early, you’ve come to the right place.